India's Foreign Trade Slowdown

Why in news?

The estimates for foreign trade showed a sharp slowdown in merchandise export growth in April, 2019 to 0.64% from a year earlier.

How is the exports scenario?

• There was a 31% surge in petroleum products shipments to overseas markets in April.
• If this is removed, India’s goods export actually contracted by over 3% in dollar terms.

• [In contrast, overall merchandise exports had expanded 11% year-on-year in March, 2019 with the growth in shipments excluding petroleum products.]
• The slump in exports was fairly widespread, with 16 of the 30 major product groups reflecting contractions.
• This is in contrast with the 10 categories that had shrunk in March.
• Worryingly, shipments of engineering goods declined by over 7% after having expanded by 16.3% in March.
• The traditionally strong export sectors all weakened in April.
• These include the gems and jewellery, leather and leather products, textiles and garments, and drugs and pharmaceuticals sectors.
• E.g. contraction in gem and jewellery exports widened to 13.4% in April, from 0.4% in March; it was 15.3% from 6.4% respectively for the leather segment
• Likewise, the pace of growth of garment exports decelerated to 4.4% from 15.1% in March.

Balance of Trade

What is the case with imports?

• Imports grew by 4.5% to $41.4 billion in April, accelerating from March’s 1.4%.
• This was primarily because the purchases of crude oil and gold continued to increase.
• The 9.3% jump in the oil import bill, from March’s 5.6%, can partly be explained by the rise in international crude prices.
• However, the 54% surge in gold imports reflects India’s unappeasable appetite for gold, calling for policymakers' attention and action.
• Excluding oil and gold, however, imports shrank by more than 2% in April.
• This signals that import demand in the real productive sectors is largely balanced.

What are the implications?

• Jobs and demand - The traditionally strong export sectors are all key providers of jobs.
• So any prolonged slump across these industries will impact jobs, wages and overall consumption demand in the domestic market.

• Trade deficit - With merchandise imports outpacing exports, the trade deficit widened to a five-month high of $15.3 billion.
• The widening trade shortfall will add pressure on India’s widening current account deficit (CAD).
• Being at around $51.9 billion in the first 9 months of fiscal 2018-19, CAD had already surpassed the preceding financial year’s 12-month shortfall of $48.7 billion.
• More challenges and limitations to trade and exports are ahead with the escalating trade war between the U.S. and China.
• The impacts of this could be widespread on global growth.
• Moreover, the rising military tensions in West Asia could potentially further push up oil prices, further increasing India's import burden.
• Given these, containing the trade and current account deficits seems significantly challenging and urgent measures are needed to boost exports.

Source: The Hindu